NewMarket Corp (NEU) 2008 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the NewMarket Corporation third-quarter 2008 financial results conference call. At this time, all participants in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions).

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Fiorenza, Vice President, Treasurer and Principal Financial Officer for NewMarket Corporation. Thank you Mr. Fiorenza. You may begin.

Thank you for joining us to discuss our third-quarter performance. With me is Teddy Gottwald, our CEO. I have a few planned comments after which we'll open the lines for any questions.

As a reminder, some of the comments we will make today are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We believe we base our statements on reasonable expectations and assumptions within the bounds of what we know about our business and operations. However, we offer no assurance that actual results will not differ materially from our expectations due to uncertainties and factors that are difficult to predict and beyond our control. A full discussion of these factors can be found in our 2007 10-K.

We have released earnings last night as you saw, and we also published our 10-Q last night. I encourage you to read the 10-Q for more detail.

Income from continuing operations was $16 million or $1.07 per share for the third quarter compared to $20 million or $1.19 per share from last year's third quarter. Income from continuing operations was $54 million or $3.48 a share for nine months, while income from continuing operations for nine months last year was $52 million or $2.99 per share. Earnings per share from continuing operations in the third quarter and nine months include the benefit of share repurchases made both in 2008 and 2007.

Petroleum additives' net sales in the third quarter of $437 million were up $85 million or about 24% from $352 million in last year's third quarter. The increase in sales was the result of higher selling prices, favorable foreign currency exchange rate and higher volumes. We shipped about 4% more products in the quarterly comparison. The increase in shipments was widespread.

When we break the 24% increase in revenue into its component parts, about six percentage points was due to shipments, about three percentage points were due to the exchange rates and the remainder or 15 percentage points due to higher pricing and mix. The nine months' petroleum additive sales of $1.2 billion were also about 24% higher compared to last year's nine months of $997 million.

Similar to the third quarter results the increase between the nine month periods reflect higher selling prices, favorable currency and an increase in 12% product shipments.

When we break the 24% increase in revenue into its component parts about 12 percentage points was due to shipments, about three percentage points due to exchange rates and the remainder or nine percentage points was due to higher pricing and mix.

Petroleum additives segment operating profit decreased to $28 million from $35 million in the quarterly comparison. The operating profit margin was 6.4% for the third quarter this year compared to 10% for the third quarter last year.

The change in operating profit between the quarters was a result of several factors. A continued reduction in margins due to increased raw material costs and other manufacturing costs partially offset by raising prices. The negative impacts of Hurricanes Ike and Gustav, increased spending in SNA and R&D. A favorable impact from higher product shipments and favorable impact from foreign currency.

During both the third quarter and nine month period there had been a significant compression of operating margins due to the increased cost of raw material, energy costs and other manufacturing costs. The cost of crude oil reached record highs during the 2008 nine month period, reflecting an increase in base oil in the United States of about 50% from the end of '07.

While the cost of crude oil has decreased, the cost of base oil, a major raw material, did not decline during the third quarter. We have been increasing selling prices in an attempt to recover these increases in cost. The timing of these actions did not show their full benefit in the third quarter.

The quarter also included negative impacts on both costs and volume due to Hurricanes Ike and Gustav. Our plants in Houston and Port Arthur were damaged and were not in production for several days. We recognized about $700,000 of expense during the third quarter for repairs to the facilities.

In addition to that, we estimate that our operating profit for the quarter was approximately $3 million lower due to the time we were not in production as well as the time period that our customers, who were also impacted by the hurricanes, couldn't accept shipments of our products. The storms also disrupted the US basalt supply and costs were negatively impacted by supply disruptions in that market.

S&A expenses of the segment were about 5% higher in the quarterly comparisons and about 12% higher for the nine months. The increase primarily resulted from higher personnel related expenses. R&D expenses for the quarter increased $1 million from last year's level and increased $5 million on a year-to-date comparison. We continue to spend to support our customers' programs and to develop the technology required to remain a technology leader in this industry. The increases in S&A and R&D for this year also include an unfavorable currency impact.

Partially offsetting these unfavorable impacts were the favorable impacts of higher product shipments and favorable foreign currency. Total shipments were about 4% higher or the nine months and about 12% higher -- I'm sorry for the three months -- and about 12% higher for the nine months.

Petroleum additives operating profit benefited from foreign currency impacts. We believe the foreign currency benefit was about $4 million to operating profit in the quarterly comparison and about $9 million year-to-date.

Interest and financing expenses were roughly the same in the quarterly comparison. We did borrow $32 million on the revolver during the third quarter of this year. Other income net was $200,000 for the third quarter this year compared to $1.2 million in the third quarter last year. The amounts in these categories are primarily the interest investment income that we earn on our cash.

Our effective tax rate on income from continuing operations was 28% for the quarter and 35.6% for the third quarter of last year. The lower effective rate in the third quarter of 2008 includes the benefit of $1 million related to the completion of the review of certain years by the IRS, as well as the benefit of increased foreign earnings at a lower statutory rate.

The nine-month effective tax rate for this year has been 32.7% compared to 35.5% last year. On a go forward basis we believe 32% to 33% is good effective tax rate to use for the Corporation.

Turning to cash, cash flows, cash at the end of the quarter was $33 million which is a decrease of $38 million since the beginning of the year. At the end of the quarter we had borrowing capacity remaining under our revolving credit facility of $58 million.

Recurring theme this year has been our cash flow situation. Our businesses continue to generate good cash flow, about $83 million for nine months. However we had quite a drain on that inflow. Our working capital increased $72 million this year, predominantly from receivables and inventories being up and some offset from accounts payable. The increase in accounts receivables, inventories and accounts payable reflect the growth of the petroleum additives operation as well as higher product costs.

We used $22 million for capital expenditures, another $29 million for our Foundry Park project and $15 million for the acquisition of the fuels business from GE. We project that total year capital expenditures will be in the $30 million range and spending in Foundry Park will be in the $45 million range. We plan to continue to finance our normal capital spending through cash generated by our business and borrowing on our revolver.

The Foundry Park needs will be provided by the construction loan facility and some of our cash. Other major uses of cash this year were funding $12 million of dividend and the repurchase of $27 million of our stock.

We had total debt of $214 million at September 30, representing an increase of about $57 million since the beginning of the year. The increase resulted from draws of $32 million on our revolving credit facility and $25 million on the Foundry Park construction loan. Our debt to EBITDA ratio for the four quarters ending September 30 was 1.6 times. Excluding the Foundry Park debt the ratio was 1.4 times. We give both measures since it is our intention to ultimately have the Foundry Park debt as nonrecourse to NewMarket.

The Foundry Park project continues to progress on schedule and within our cost estimates. It is our expectation that this will continue for the remainder of the project until its completion.

During the third quarter we purchased 316,000 shares of common stock at an average price of $63.26 a share. We have about $80 million remaining on our $100 million authorization.

Now, taking a look forward, as we approach the end of 2008 our business is performing well in an uncertain economic time. Our facilities are operating at high rates and we are meeting our customers' demands while continuing to invest in research and development.

Our view of the petroleum additives industry has not changed. It is a low growth industry. We experienced good demand during the first half of this year and some growth in the third quarter. We are, however, beginning to experience some slowdown in demand for our products. Accordingly, we're somewhat concerned that we may experience lower demand in the fourth quarter than we have experienced in the first three quarters of the year. A reduction in the 5 to 10% range versus the third quarter would not be out of line with what we are seeing.

We now expect 2008 petroleum additives operating profit will be at least as much as 2007. We believe we have taken the necessary steps in the marketplace to recover the increases in raw material costs that we experienced this year and expect the favorable impact of those actions to be more fully reflected in operating margins in the fourth quarter. The significant uncertainty in achieving our profit projections is the overall demand for our products.

As we have communicated in the past, we intend to leverage our financial strength to increase shareholder value by growing the business with acquisitions being an area of primary interest. Our primary focus in the acquisition area remains on the petroleum additives industry.

During the third quarter we purchased the fuel additive business from GE. This was a small acquisition but expands our presence in the finished fuel additives market, one in which we intend to continue to expand. That is the end of my prepared comments. I would like to open the lines now for any questions.

(Operator Instructions) Ivan Marcuse, KeyBanc Capital Markets.

Thanks for taken my call. Real quick, I think I missed it. Volume was up 6%. What was FX and price in the additives business?

For the quarter?

Yes, for the quarter.

12% was shipment, 3% was FX, 9% was pricing.

Got you. Thank you. And then -- so you said you saw -- you are seeing volume fall off in the fourth quarter as far -- are you seeing it more in your international business or North America or is it pretty equal? Could you give a little bit more color on where you are seeing that volume come off?

This is Teddy. It is not isolated to any one place. We are seeing it in North America. We are seeing it in Asia; those two markets probably more than other places.

We expect this quarter to be lighter on volume as David mentioned. We think this will be a near-term kind of phenomenon and we don't expect any longer term issue on volume. I will also say there is a silver lining in the lighter volume for us because our clients have been running flat out, and we have some maintenance and expansion tie-ins coming in a couple of our plants in the fourth quarter and early in the first quarter of next year. So a little relief on the volume side is not a bad thing for us.

Great. You have been in the business for wall. How has your business, to move at it as Afton, typically perform in a recession, the past recessions? And how is -- if we are in a recession now, how is now different than the past couple we have gone through for Afton?

Those are really good questions. Historically the additive business has been less dependent on the economy than most other industries. I think that is still true today. There is pushes and pulls on both sides of that equation. Apparently in a slowdown people don't buy new cars as much and the new car factory fill market is important to us, but it is a small portion of our total and we have seen some weakness there throughout this year. So that is a negative.

And people will delay changing their oil a bit, stretch it out some. But after a while you can't delay changing your oil. Gas prices being high has impacted demand somewhat, but as you know gasoline prices are coming back down and I would suspect people will return to their normal driving habits. So there are pushes and pulls but all things considered I think our industry is less dependent than most on economic conditions. And at this point I don't really expect the current situation we're in to be any different from past ones from a demand standpoint.

You said driving was down and margins were down a bit this quarter. Was there maybe a different product mix than you have seen in the past few quarters, maybe engine oil, which is I believe a little bit lower margin versus maybe driveline additives. Was there a different product mix than usual or is it just the fact -- more of a matter of just higher raw materials?

Any product mix difference is dramatically overshadowed by the increase in raw material.

Okay. One last question, base oil, I know it dropped a little bit I think 5 to 10% depending on which one this past week. How long will that take before you see the benefit from that decrease and will there be any pressure on your pricing if prices continue to fall for base oil?

Base oil is about 20% of our raw material purchases. You mentioned a 5 to 10% drop in base oil and we have seen a number of announcements in the marketplace that support that, but we are not seeing it as a Company. The change we have seen so far is considerably less than that.

Crude has dropped a lot and while there have been some base oil announced reductions, we have seen tightness in certain base oils that we need. The disruptions in the gulf Coast to the base oil market in the third quarter from the hurricanes impacted our costs quite a bit and our whole supply system.

Knowing what you know now and seeing volumes probably for the industry are probably going to be off a little bit, would you expect base oil to still stay at these historically high levels this quarter? Or would you -- with crude plummeting, there has to be some downward pressure on base oil pricing, right? Or do you expect you probably won't see it until maybe the first quarter of '09 if anything? What's your thoughts on that?

We do expect base oil to drop. We expect some more dropping in the fourth quarter and the first half of next year also because of overall supply and demand in the base oil market, both from a weakening of demand and an increase in supply. So we do expect to see some drop.

Crude is down quite a bit too, but on a number of our petrochemicals they're still tight and we are not seeing any substantial impact on the other 80% of our purchases yet. Ultimately, though, with economic conditions being what they are and with crude dropping, we do expect [relief on] the broader raw materials front. We are just not there yet.

And this will be truly my last question. I know I said that two questions ago. But what is your sense of your customers' inventories? Do you see them -- are they high or do think they're keeping their inventories pretty lean right now with still seeing automobiles being down and going maybe to people driving less? Or do you think that their inventories are high? What is your sense?

My sense is purely anecdotal. But I think we are seeing customers reducing inventory. I think for a number of reasons, the uncertainty in the economic conditions for one and the fact that we are through the hurricane season, there would typically be some destocking going on from that anyway.

I appreciate you taking my questions. Thank you very much.

Robert Felice, Gabelli & Co.

A couple quick questions, I guess, first, historically we would expect to see 4Q get a bit weaker on the volume side given some of the seasonality. But over the last two or three years we have seen that dynamic change a bit around hurricanes with build a in 2Q and a drawdown in the third quarter and a rebuild in the fourth quarter.

Are we seeing a reversion back to what we would normally expect historically? Just curious to get a sense as to what happened around the hurricanes from a volume perspectives.

We have spent a fair amount of time internally discussing that issue and the first half this year did not meet the typical pattern. The first quarter was a lot higher than it normally is and the third quarter was weaker that usually is. We are not really sure if the typical pattern has changed for the future or is this more short-term. We just don't know at this point.

Now, in terms of the volume pattern you have seen so far in the fourth quarter, has it been consistently weak or has it been lumpy? I know we're only a couple of weeks in, but any clarity.

The 5 to 10% was based on what we have seen and it is kind of general.

And then in terms of your price cost gap, what was the -- where did that stand during the quarter and on a year-to-date basis?

We basically have been playing catch up for eight months out of the nine in 2008 and in September we finally caught up.

And on a year-to-date basis, what is the gap? I'm just trying to get a sense of that to see what the headwind was this year and potentially what the tailwind might be next year.

I don't know quite how to answer that. We still believe 10% operating profit is representative of this business. Though whatever data you are looking at, our year-to-date numbers would be south of that for sure.

Would you expect to get back to that 10% level in 2009?

Yes.

I know you said your operating income should be at least as great as last year's level and that would imply a sequential improvement. What kind of magnitude are you looking at?

That's why we said at least that, so it is going to be a sequential improvement -- since we don't give guidance on (multiple speakers) will leave it right there.

I know during the first quarter you had a onetime legal gain. Excluding that number, would you say you would still be as great as last year?

I don't know Robert. I have not looked at it that closely. But I was including the $3 million we made when we made that statement.

Okay. In terms of Foundry Park, how are things progressing there? And maybe you could give us an update on the financing situation.

The project is going along fine. We are on schedule and a little better than budget or below budget. And the building is now out of the ground. The structure is up and the skin is going on so that whatever uncertainties there are with constructing are becoming smaller as we go forward. So we expect to finish in that position.

The short-term financing is in place, as you know. We have three banks that are providing the construction loans. The longer-term financing does have a question around what it might look like, because the loan we were anticipating was in a market that is not functioning right now. So we are talking to the group that we had the loan application with that we are also talking to other folks about what alternatives there are.

The good news here is that we don't need this financing for another 15 months. As a matter of fact, the construction loan is not due until August 2010. So you could even look at that as we don't need it for two years. So we are working on that and that is the situation right now.

Okay, great. Thanks for taking my question.

[Rich Brook, First Investment].

I had a question on your volume gains year-to-date and also in the quarter. What do you attribute those to? Is it market share gains? Is it new products or how would you look at that?

It is a combination of those. It's market share gains and new products. But I would say that certainly in the first half of this year industrywide demand was a lot higher than historical patterns.

Okay. You would not -- would you attribute (inaudible) to it to your buying share by not raising prices as quick as your competitors? How do you feel your pricing actions have been versus your competitors?

We don't discuss our pricing strategy. I will say though that we don't have an aggressive market share growth strategy.

Back to Foundry Park for a minute. We have seen companies back out of new headquarters and things like that recently in the market. Is there any way for MeadWestvaco to get out of this contract or what's your thoughts there?

This is a solid contract with a very reputable large corporation.

Where are their current headquarters? Or is this a consolidation of headquarters? How -- what is their strategy in moving to this location?

They're in short-term space here in the area.

And kind of an overall picture, what is the strategic rationale of real estate development on a company that is mainly a petroleum additives business? How do these two businesses tie together?

We have some very choice real estate here contiguous with our headquarters. We have literally built the real estate position here over a 100-year period. This is not a new leg in our business. It is not something we intend to grow in. This is a way for us to maximize the value of the property that we have right here.

Also, given what you are seeing in the real estate financing market, your stock repurchase agreements, now is probably the time where people are looking to sell businesses. Do you feel any of your actions recently have limited your financial flexibility going forward to look at acquisitions? Or I would be interested in your thoughts there.

We're still has active as we have been on the acquisition analysis and pursuit side. Any decision we make on repurchase of stock or capital spending takes into account the availability of acquisitions that fit our strategy. Really it is the market today, not our financial capability, that limits acquisitions. There is money to be had for acquisitions out there. It is very expensive. But we are just as active as we have been.

Could you give a little more color on the recent GE acquisition? Do you -- sort of some parameters on how much revenue you see it adding and things along those lines?

It is a very small business in the scheme of things and relative to us. It is a nice business in that it expands our presence in the refinished fuel additives area, the downstream portion of the fuel additive market beyond the refinery gate. It gives us broader distribution in the US for these products and it is a market that we think fits very nicely with our technology, and we plan to continue to grow in this area.

Did any facilities come along with this acquisition or is the business just going to be integrated into new markets, existing facilities?

No manufacturing facilities came as part of the deal.

Thank you very much for your time.

Ian Zaffino, Oppenheimer.

Just a question here for David, (inaudible) 4% volume and you mentioned 6% on the call. Which is the right number?

The one requirement we have is to report how much tons moved. That is 4%. The other requirement when we break it down is you try to figure out how much each ton was worth and that is the 6%. I apologize for the two numbers and off-line I can show you in more detail. But every ton is not of the same value from the 4% -- from the 6% one.

So in that 6% is 2% of mix??

Yes, you can look at that it that way.

Okay. The other question would be when you talk about disruption in base oil, is that included in that $4 million estimate of what the hurricanes cost you?

Yes. But I mean not much of it in that. That disruption continued some into the fourth quarter. But the answer is yes. Some of it is in the $4 million.

How has that disruption manifested itself? Is it in supplies and prices?

It is in the supply and the disruption of the transportation network also. I will give you a simple example. When we might have taken product by a barge, we might now have to be trucking products, which has higher transportation costs. And then, in fact, we might even be limited on how much that supplier can give us. So we have to go and get some supply at a stop price, at a higher price to keep our customers going. That is kinds of the ways it manifests itself.

Okay and on the pricing increase side, I guess two questions here I will throw out. Number one is, some of your price increases have been below your competition's. Is there something structural going on here? If you could kind of elaborate on that.

And the other one would be -- I know Teddy had mentioned that the third quarter, barring any type of increases in raw materials, these have -- you would see margins improve. Base oil actually was relatively flat to my best guesstimate. Was something else going on there? And even if I adjust for the hurricane I still don't get there. So if you could help me out there, thanks.

First off, as you know, I have no way to comment on our competition. We're very pleased with the pricing actions we have taken and we have recovered the raw materials.

The problem here in -- is you're looking at a quarter's worth of data. We never -- I hope we never said we would be fully recovered for the whole third quarter. When you see the data we see, which is more of a monthly data, you can -- we see that we are recovering the margins toward the end of September moving into October. So that is the difference from where you sit and where we sit.

All right, thank you very much.

Mike Judd, Greenwich Consultants.

Thanks for taking my question. Your foreign exchange on a year-over-year basis has been averaging about 3% over the last three quarters or so. What are your assumptions for the December quarter? Let's say you just took the exchange rates where they are today. Would it result in a negative number on a year-over-year basis? I would imagine it would, right?

On a year-over-year for the fourth-quarter I have to tell you, I don't have fourth quarter '07 exchange rate in front of me. There might be a push with last year's fourth quarter as opposed to being negative, if that was your question.

A push meaning it is actually a positive number versus (multiple speakers)

No, meaning zero.

Zero. Okay. All right. I just wanted to go back to the last question also. I'm a little bit confused because we're going to have volumes down, foreign exchange probably flat and maybe this could help me out here. You had a 15% year-over-year increase in pricing for petroleum additives. Should we be expecting a larger number than that or a lesser number than that in the December quarter?

I don't really know how to compare the two. But I will say that the price increases that we implemented to make up for the cost increases that we have seen did not come in on -- at the very beginning of the third quarter. They rolled in through the quarter. So you do not see the full impact of price increases in the third quarter numbers.

I understand that but you guys provide numbers for us each quarter and we have those numbers than our models. I think what we want to try to do is have some consistency in our earnings models. So I'm trying to think about it from the perspective of the information you give us on a quarterly basis, but also the type of way we would look at it in our earnings model.

Let me just go back and ask the question again, which is that you had a 3% year-over-year improvement in price in the first quarter. I'm not sure I have the right number in the second quarter but it might be 6.3% in the June quarter. It was around 15% in the September quarter. What do you expect that number could look like potentially? I realize it is early in the quarter.

I'm actually not prepared to give you a decent answer Mike. Why don't you call me and we'll talk off-line?

Okay. Lastly, as I look at the margin numbers in order to get to flat year-over-year, maybe we should just make sure we're all on the same basis here. The EBIT number you are talking about for last year, can you give us that number so we can make sure that maybe there were not some puts and takes and changes due to acquisitions? When you say you expect the full year earnings to be at least as -- at the same level or better than last year, what is that base number in terms of the EBIT?

I'm trying to look it up. I was referring to petroleum additives (multiple speakers)

Right. That's what I'm talking about too, yes. Sure. No problem. I'm talking about the same thing.

I'll find it in a second. That is for the whole year last year. 129.

Okay, great. This is just the last piece of this question which is -- conceptually, I'm having a difficult time understanding how volumes can basically potentially decline here but margins could increase. It seems to me that what is going on, and I cover 46 chemical companies and I see broad based weakness in terms of demand. I would imagine that if you attempt to push through higher prices in this type of environment that your volumes could actually be significantly even weaker than the range you have given us.

I'm sorry if we haven't been clear. All of the pricing discussions have happened, past tense. And what you're basically going to see if the follow through in the fourth quarters.

Okay, but are the customers -- do they -- are they committed? Do they have to contractually agree to purchase the volumes or not?

I guess no customer has to purchase the volume. But these are long-standing customers and we expect that they will.

I think someone else asked a question about your customers' inventories. What level of visibility do you have into those inventory levels?

Not a lot, and I believe that is why Teddy described it as anecdotal.

Thanks for the help.

[Amy Levine, Shepherd Capital].

Can you talk about your stock buyback program? Do you plan on continuing that into '09 or do you think it's more prudent to maybe save the cash for any other potential uses?

We have $80 million left on our authorization and the only guidance I can give you is that that will be reviewed in light of the other things that are going on in our Company. It has another eighteen months or two years on that authorization.

Right, but have your view -- given the change in the capital markets, do you think that view has changed?

No. I don't believe so. It is still something we will consider.

Thank you.

(Operator Instructions) Bob Robotti, Robotti & Company.

Hi everybody. Hey a lot more people on the call than there used to be two and three years ago. So you know, kind of going fourth quarter or first quarter next year, the movements are -- are they -- is this what you said? I want to make sure. Foreign currency that is probably moving somewhat directionally because it's been a positive, and what you said is it probably would be neutral in the fourth quarter, as a best guess of course. We are only one-third of the way through so who knows and currencies have been volatile.

On the volume side, of course you said volumes are definitely going to be down some. Raw materials and margins clearly have improved because you put through the price increases and raw materials probably look as if they're heading positively, not negatively. Capacity utilization, you are going to be slightly less but you also said capacity utilization was relatively high, so you probably don't lose too much in terms of somewhat lower capacity utilization. And of course the mix, which the trend has been over the last number of years, continues to be a positive trend.

So are those kind of all the forces in the short-term that kind of -- when we look out to the next couple of quarters are affecting earnings? And net of all that, it would seem to me to be clearly positive.

I agree and I think you summarized our views accurately.

And then on the buyback, of course since you said the outside external market really hasn't -- you don't see it having too much of an impact, that would seem to be, since in January the price was $54 and August it was $64 or conversely, given current markets, it probably looks pretty attractive.

As -- when you go through the relative alternative you're looking at, clearly one of the alternatives -- the buyback stocks certainly looks more attractive today than when you have done it in the past. All other things being equal, I guess there are not necessarily any deals [that are not going to] come through. That is the framework in which you are going to look at what do you want to do on the buyback or not.

That is the framework we will be looking at. What do you want to me say? (multiple speakers)

And then really a small item. The financing -- the construction wrote on the Foundry Park, of course the loan itself is really off of LIBOR which of course has been all over the place, but you have done a swap on that. Is that right?

That's correct.

And does that mean that the crazy movements in LIBOR are really being absorbed through the swap you have done? So the fixed rate kind of is in effect and that's really all you are paying.

That's correct.

Who is that swap with? Or should we be concerned? Everybody is concerned about people have done swaps and done smart things but then they have created a financial risk of one sort into a credit risk. Do you know the counterparty is in the swap?

The counterparty are the three guys that loaned us the money. SunTrust, PNC and Bank of America. So we don't have any concerns.

Again, on Foundry Park, how many acres are associated with the project ground land?

3.5 or so.

3.5. What incremental ground land do you own that is not part of the Foundry Park and is not part of corporate offices?

A whole lot. But the better answer is there is probably another three or four acres that is of this same quality.

Okay and obviously probably nothing happened in there in the short-term given kind of current external events.

That's fair.

And just a last random item that you probably are not going to know the answer to. There was that talk 6, 7, 8 months ago whatever it was (inaudible) was being evaluated by Shell and Exxon. I guess it was -- was it mainly Shell who was doing a valuation? Is there any scuttlebutt or anything on that or anything happening?

You probably know just as much as we know. I don't have anything to say about that one.

I doubt I know as much as you do, but it is all speculation. Thanks a lot. I appreciate it. (multiple speakers) And by the way, of course, you positioned the Company great the last couple of years. Things have been unfolding and seems to me as if you are well positioned to ride out whatever noise is going on in here in the short-term.

Thank you.

Robert Felice, Gabelli & Co.

Just a quick follow-up. I wanted to get some greater clarity around FX. It has been a nice tailwind for awhile and as you said it will be neutral in the fourth. If the dollar stays where it is right now, what kind of headwind are you looking at in '09 on the bottom line?

Average nine-month euro was $1.53. And the average nine-month euro for the previous year was $1.35 or $1.33. Let's make it simple. So that $0.20 up was the predominant reason we think we had about a $9 million gain. So if $0.20 goes away it will be $9 million, $10 million, $11 million negative in '09.

And yet on the same token you said you still expect to achieve that 10% operating income margin.

That is correct.

And if I look at your trailing twelve-month revenue here and take that 10% operating income it is $160 million roughly.

That is the number, yes,

Is this -- I know you don't give guidance, but qualitative color around that number. Is that the kind of magnitude that we are looking at for next year?

Your comment about not giving guidance is the right one.

I'm trying here for whatever clarity I can get. All right, I appreciate you taking the questions.

[Michael Sofransky, Onyx Capital Management].

Good morning. Just a quick question about your buyback. Do you anticipate getting much more aggressive over here?

I just don't comment on what our future plans are. All I can tell you is we have $80 million authorization. It's good for another 18, 20 months and we look at it every quarter.

All right. Another question, with $80 million left, would be in your best interest to buyback your bonds at around 75 instead of buying back your stock?

We look at that arithmetic too but [seven and one-eighth] money is pretty good money right now from where I am sitting.

Absolutely. I'm not (multiple speakers)

We're not real likely to be doing that.

And did to say you saw margins expanding slightly during the fourth quarter or you did not really give any color on that?

No. We said we expect margins to expand in the fourth quarter over the third quarter.

The margins to expand, but volumes to be down.

Correct.

Thank you very much.

Ian Zaffino, Oppenheimer.

Really quickly. David you said $129 million of operating profit you did on a normalized basis in '07?

For petroleum additives.

Okay. And you're saying '08 is going to at least -- (multiple speakers)?

It is going to at least be $129 million.

That includes the hurricane, including everything?

That is correct.

So like the GAAP number that you print (multiple speakers)

That is correct.

All right, thank you very much.

We have no further questions at this time. I would like to turn the floor back to management.

Thank you for joining us and I will talk to you later. Bye.

Ladies and gentlemen this does conclude today's telephone conference. You may disconnect your lines at this time.